What role does government play in Australian economic activity? Essay Example

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The Roles of Government in Australian Economic Activity 6

The Roles of Government in Australian Economic Activity

Managing the Economy

The government plays a significant role in managing the economy through tackling unemployment and inflation. The government plays a considerable role in the maintenance of the stability of markets and endeavors to manage entire economy. The objective of the government is to promote long term economic stability and economic growth through keeping inflation and unemployment low. The Australian government has a significant influence on incentives that influence investment, innovation and decisions on essential drivers of economic growth. The government management of economy is simplified by a feasible policy framework entailing an autonomous central bank with the responsibility of setting a monetary policy (Mathai, 2013).

The government effectively utilizes fiscal policy in periods of key economic downturns and shocks to minimize the negative effect on economic activity and thus minimize job loss .Fiscal policy functions via changes in composition and level of government spending, types and levels of taxes levies and form and level of government borrowing. The Australian government directly regulates the economic activity via capital and recurrent expenditure, and indirectly, via the influences of taxes, spending and transfers upon private consumption, net exports and investments (Horton, & El-Ganainy, 2012).

As the global economic atmosphere turns more unstable and as the country becomes highly exposed to the movements in international prices of commodities the threats of such economic shocks are likely to emerge. So as to efficiently manage extreme financial and economic circumstances, the government creates capacity via sensible fiscal management during normal periods. Australia had well built budgetary position for several years prior to the international monetary crisis which enabled the country to endure its economic effect.

The Australian government also promotes economic activity through monetary policy. The Reserve Bank of Australia is an example of an economic institution developed by the Australian government and has the responsibility of establishing monetary policy. Decisions of monetary policy are made through altering cash rate. Through changing cash rate, the Reserve Bank of Australia is capable of influencing the rate of interest across financial system. A change in the rate of interest can subsequently influence economic activity through affecting investment and savings behavior, credit supply, exchange rate, asset price and household expenditure. When demand pressures build up in the economy as a result of increasing prices, the Reserve Bank of Australia tightens monetary policy, thus dampening demand. On the other hand, when weak demand is experienced and reflected within deflationary pressures, the reserve bank of Australia might loosen the monetary policy so as to promote economic activity (Argy & Nevile, 2015).

Wealth distribution

Australia has a capitalist economy and the concern of the government is that wealth is fairly distributed amid all societal members and that every member of the society is capable to earn some type of income. The Australian government ensures that services are created and delivered at minimal cost so as to release financing for more service. The government supports wealth creation and economic growth through promoting productive capacity. Alleviation of the effect of poverty and offering individuals with the opportunity to evade poverty is an essential role of the government (Clare & Johnston, 2013).

The provision of taxpayer financed aid payments is a fundamental public priority. Their key objective is to ensure minimal, adequate living standard for individuals who are not able to sustain themselves through their savings or work. The government has also extended their services to people with disabilities. The national disability insurance scheme is an example of economic institution that the government utilizes to support disabled citizens. The plan has a universal community support and aims at offering a social insurance for people with disabilities. Disable people are faced with the challenge of managing their conditions and they also encounter societal exclusion as well as poor employment outcomes and opportunities. The national disability insurance plan is also aims at promoting the wellbeing of family members who usually abandon employment in order to take care of a people with intense disability (Dollery & Marshall, 2013).

Resource allocation

Within a capitalist market economy, the role of Australian government is to effective allocation of scare resources. In doing so, the government ensures that all people have access to reasonable standards of living by having access the things like transport, education and health services. The government influences the productivity and quality of labor force and improves access to social and economic infrastructure to promote global Australia’s international competitiveness. Access to basic education and health is vital for citizens to reach their full potential, to participate in labor force and make productive contribution to the society. University education and vocational institutions is an example of economic institution that the government uses to support individuals through providing them with the needed competencies and skills. Along with supporting the economic competitiveness of Australia, education is a vital driver of economic prosperity, social cohesions and social mobility (Marginson, 2012).

Policy setting via the welfare and tax system influence the work of incentives is framed in a manner that do not discourage individuals from looking for paid employment. The government also has the role of determining the composition and size of the migration intake of Australia, which adds to the country’s labor supply as well as long term productive capacity. The government also offer, regulate and finance economic infrastructures like road, rail port and energy facilities. The quality and availability of infrastructure facilitates domestic business and impacts on the productivity and capability of local business to compete in global markets (Dollery & Marshall, 2013).


Mathai, K. (2013). Monetary policy: stabilizing prices and output, International Monetary Fund.

Horton, M., & El-Ganainy, A. (2012). Fiscal policy: taking and giving away, International Monetary Fund.

Clare, R., & Johnston K.(2013). Income distribution in Australia: recent Trends and research. Australia: Wiley Publishers.

Marginson, S. (2012). Education and public policyin Australia. Cambridge: Cambrideg University Press.

Dollery, B., & Marshall, N. (2013). Australian Local Government: Reform and Renewal. Australia: Macmillan Education Publishers.

Argy, V., & Nevile, J. (2015). Inflation and unemployment; theory, Experience and Policy Making. London: Routledge.